Krugman’s blog, 9/29/14

September 30, 2014

There were two posts yesterday.  The first was “Nobody Could Have Predicted, Bill Gross Edition:”

Gillian Tett feels sorry for BIll Gross, who was caught unaware by the sudden shift in bond market behavior. Who could have predicted that interest rates would stay low despite large budget deficits?

Um, how about Pimco’s own chief economist, Paul McCulley?

The truth is that the quiescence of interest and inflation rates was predicted by everyone who understood the obvious — that we had entered a liquidity trap — and thought through the implications. I explained it more than five years ago. When central banks have pushed policy rates as low as they can, and the economy is still depressed, what that tells you is that the economy is awash in excess desired savings that have nowhere to go. And as I wrote:

So what does government borrowing do? It gives some of those excess savings a place to go — and in the process expands overall demand, and hence GDP. It does NOT crowd out private spending, at least not until the excess supply of savings has been sopped up, which is the same thing as saying not until the economy has escaped from the liquidity trap.

So no crowding out, no reason interest rates should rise.

And Paul McCulley understood all this really well (pdf):

[I]n the topsy-turvy world of liquidity traps, these textbook orthodoxies do not apply, and acting irresponsibly relative to orthodoxy by increasing borrowing will do more good than harm.

Crowding out, overheating and rising interest rates are also not likely to be a problem as there is no competition for funds from the private sector. For evidence, look no further than the impact of government borrowing on long-term interest rates in the U.S. during the Great Depression, or more recently, Japan.

Really, this wasn’t and isn’t hard.

Or maybe it is. Strikingly, Tett’s version of what went wrong with Gross’s predictions makes no mention of deleveraging and the zero lower bound; it’s all a power play by central banks, which have been “intimidating” bond investors with unconventional monetary policy. This is utterly wrong, and in fact Gross’s own mistakes show that it’s wrong: one of his big failures was betting that rates would spike when the Fed ended QE2, which they predictably didn’t.

As an aside, whenever I hear people explaining away the failure of interest rates to spike as the result of those evil central bankers artificially keeping them down, I want to ask how they think that’s possible. Surely the same people, if you had asked them a few years ago about what would happen if the Fed tried to suppress interest rates by massively expanding its balance sheet, would have predicted runaway inflation. That didn’t happen, which should make you wonder what exactly they mean by saying that rates are artificially low.

Oh, and Tett ends the piece by citing the Bank for International Settlements as a voice of wisdom. That’s pretty amazing, too; the sadomonetarists of Basel have a remarkable track record of being wrong about everything since 2008, but always finding some reason to call for higher rates.

The thing is, Tett is a smart observer who talks to a lot of people in finance; seeing her present a discredited theory as obviously true, without so much as mentioning the kind of analysis that has been worked all along, says bad things about the extent to which anyone who matters has learned anything.

Yesterday’s second post was “Mr. Krugman and the Classics (Trivial and Self-Indulgent):”

Joe Gagnon, traveling in Asia Minor, sends me a picture from a museum:

I know I’m an old-time Keynesian, but maybe even older-time than I knew …

Cohen and Nocera

September 30, 2014

Mr. Cohen loves him some war.  In “Here There is No Why” he shrieks that the Islamic State represents the counterhuman and that the human has no alternative but to fight back.  In the comments “Mark Thomasen” from Clawson, WI has this to say:  “This begins by comparing the deaths of three men to the Holocaust, with several excerpts from an account of a death camp. It ends with Hitler. Along the way it says both this enemy like Hitler is ‘non-human,’ and ‘really counter-human.’ … This is purest propaganda for war.”  Mr. Nocera takes a look at “The Hole in Holder’s Legacy” and says the Justice Department under Attorney General Eric Holder Jr. failed to prosecute cases related to the financial crisis.  Here’s Mr. Cohen:

In a famous passage from “Survival in Auschwitz,” Primo Levi relates an incident upon arrival in the Nazi death camp that captures the intersection of the human with the inhuman. He and other Italian prisoners have been held in a shed as they await their fate. Levi looks around in search of some means to quench his thirst:

“I eyed a fine icicle outside the window, within hand’s reach. I opened the window and broke off the icicle but at once a large, heavy guard prowling outside brutally snatched it away from me. ‘Warum?’ I asked him in my poor German. ‘Hier ist kein warum,’ (there is no why here), he replied, pushing me inside with a shove.”

There is no why here. The phrase has been reverberating in me since I watched a henchman of the organization that calls itself Islamic State behead two American journalists, James Foley and Steven Sotloff, and a British aid worker, David Haines. The men had been broken by their imprisonment. They had been hollowed out, a terrible thing to behold. How many times they must have asked themselves the why of their captivity, humiliation and torture right up to the moment when a small knife was applied, with a sawing motion, to their throats. Each of the three men died alone, unlike the Yazidis murdered in droves, the Shiite soldiers massacred, the women and children slaughtered during the advance of black-clad ISIS forces across northern Iraq. Abu Bakr al-Baghdadi, the leader of ISIS, has created a cult of violence that makes the elimination of all nonbelievers the cornerstone of a movement whose avowed objective is a restored Islamic caliphate but whose raison d’être is the slaughter itself.

It is human to seek for reasons. Perhaps the rise of ISIS may be seen as the culmination of decades of Arab resentment at perceived Western domination, drawing support from the same anger as the Muslim Brotherhood and Al Qaeda before it; or as an expression of the abject failure of Arab societies; or as an armed Sunni response to the Shia-bolstering American invasion of Iraq; or as brutal payback for Abu Ghraib and Guantánamo (where, it must be said, there was scant “why” for prisoners detained for years and guilty of no crime); or as a well-funded offshoot of Saudi Wahhabism interpreted in its most literal form; or as a heady alternative for disaffected young Muslims to the moral void of Western civilization; or as evidence of the crisis of Islam and the inevitable Thirty Years War of its Sunni and Shia branches; or simply as a call to arms to drive out the United States the way the infidel Crusaders were ousted from the Levant.

Yet, in the end, there is no why to the barbarism of ISIS. There is no why in Raqqa. Evil may adduce reasons; they fall short. The Nazi death machine was unique. Facile invocation of it is too frequent, belittling the phenomenon and its victims. But I was given pause by Martin Amis’ afterword to his powerful new novel, “The Zone of Interest,” where he probes the “why” of Hitler and quotes both the icicle passage and another from Levi:

“Perhaps one cannot, what is more one must not, understand what happened, because to understand is almost to justify. Let me explain: ‘understanding’ a proposal or human behavior means to ‘contain’ it, contain its author, put oneself in his place, identify with him.” Levi, referring to Hitler, Himmler and the rest, goes on: “Perhaps it is desirable that their words (and also, unfortunately, their deeds) cannot be comprehensible to us. They are non-human words and deeds, really counter-human.”

Presented with the counter-human, the human must fight back. In the joint “Statement on Atrocities” of October 1943, issued by Churchill, Roosevelt and Stalin, there was no mention of the Jews, although millions had been gassed or shot by then. A defense mechanism to the incomprehensible is to pretend it does not exist. “Leave it to the Arabs, it’s their mess, they can clean it up,” is an inadequate (if understandable) response to ISIS. It would have been the wrong one. President Obama’s coalition in the war to eradicate ISIS may be flimsy but passivity was not an option.

Hitler, of course, destroyed Germany. His fury was directed outward but its ultimate impact was inward. Al-Baghdadi with his 1,000-year caliphate targets the West, but it is a rotten Arab order that is at risk and must find a response to ISIS and the frustrations of its citizens. This is an Arab Zero Hour. One other thing: In this fight, I would say, all means are good. The Soviet Union, an ideological rival, was a key ally of the United States in defeating Nazism. It is obvious which nation today can play that role against ISIS. Its name is Iran.

“All means are good.”  So he’s telling us that the end justifies the means…  Here’s Mr. Nocera:

A few weeks ago, Attorney General Eric Holder Jr. gave a speech at the New York University School of Law on the subject of white-collar prosecutions. In it, he offered a full-throated defense of his department’s efforts in the aftermath of the 2008 financial crisis. With his resignation announcement coming eight days later, one can’t help but view his speech as a kind of valedictory.

The Justice Department, he said, had stood vigilant against financial fraud “wherever it is uncovered” — and prosecuted “criminal conduct to the fullest extent of the law.” He took credit for negotiating huge fines against financial firms, and for forcing several big banks — Credit Suisse and BNP Paribas — to accept guilty pleas.

As for the prosecution of individuals involved in the financial crisis, he claimed that the Justice Department had “taken aggressive action, nearly doubling the number of mortgage fraud indictments and criminal convictions between 2009 and 2010, then increasing them even further the following year.”

Actually, Holder’s Justice Department has been notoriously laggard in prosecuting crimes that stemmed from the financial crisis, and much of what it has done amounts to an exercise in public relations.

Take, for instance, those guilty pleas extracted from Credit Suisse and BNP Paribas. Last March, Holder said that he feared that prosecuting large financial institutions could hurt the economy. This became known as his “too big to jail” remark — which he quickly disavowed. No wonder he was eager to have some firms plead guilty! Yet, as Peter Henning notes in a New York Times DealBook article, the Justice Department made sure those guilty pleas didn’t inflict too much pain. In the case of BNP Paribas, prosecutors secured agreements from state banking regulators that they wouldn’t pull the bank’s license to do business.

Or take the claim that the Justice Department has been rigorously rooting out mortgage fraud. In fact, after a grand announcement that the department was putting together a mortgage fraud task force, U.S. attorneys around the country began aiming their fire at easy prey: small-time mortgage brokers, or homeowners who had lied on “liar loans.” None of the top executives from any of the major firms were indicted. Indeed, according to an article in The New York Times Magazine in May, only one executive of any kind — a mid-level executive with Credit Suisse — has gone to prison as a result of his actions during the financial crisis. The notion that he’s the only one who committed a crime in the mortgage-crazed run-up to the financial crisis is, quite simply, implausible.

As for those big fines against Bank of America, Citigroup and JPMorgan Chase, not only did they come very late, but their terms were such that it was impossible to know for sure the extent of their wrongdoing. And, of course, despite fines that went into the billions, no actual human was prosecuted for any wrongdoing.

So the question worth asking, as Holder plans to step down, is not what his department did but why it did so little. Why was it so reluctant to pursue the financial crimes connected to the 2008 crisis? One answer is that these are hard cases to prosecute — harder than negotiating a financial settlement with a big bank. Early on, the Justice Department tried two Bear Stearns portfolio managers whose hedge fund — stuffed with mortgage-backed securities — collapsed. The two men were found innocent. That verdict seems to have sent a chill through prosecutors, making them reluctant to go after others.

Jesse Eisinger, the author of that Times Magazine article, wrote that, over the years, the Justice Department saw “an erosion of the department’s actual trial skills,” as well as a drop in resources. In the Southern District of New York, U.S. Attorney Preet Bharara focused — with great success — on insider-trading cases, where he had wiretaps that made prosecutions relatively easy, instead of difficult-to-try financial crisis cases.

Adam Levitin, a professor at Georgetown Law School, had his own list of reasons, which he emailed me. They included fear that the Obama administration would be accused of an anti-business witch hunt if it went after Wall Street; “deep personal, cultural, financial and political ties” between the administration and Wall Street; and a lack of understanding of the products and markets involved. “What it all boils down to,” Levitin concluded, “is that we didn’t have prosecutions because no one ever really wanted to prosecute.”

Holder’s legacy is a mixed bag. As The Times’s Matt Apuzzo wrote last week, he “succeeded in reducing lengthy prison sentences, opened civil rights investigations against police departments in record numbers and challenged identification requirements for voters.” On the negative side, he subpoenaed journalists and went after their sources.

No matter how he tries to spin it, Holder’s inability — or unwillingness — to prosecute financial crimes is on the negative side of the ledger.

Of course he wasn’t going to prosecute the banksters.  And he’s heading right back to the same white shoe law firm he came from.  A firm that represents those very banksters, as well as good citizens like the NFL…

Krugman, solo

September 29, 2014

Mr. Blow is off today.  In “Our Invisible Rich” Prof. Krugman says they have become so wealthy that most Americans can’t imagine how much they’re worth.  Here he is:

Half a century ago, a classic essay in The New Yorker titled “Our Invisible Poor” took on the then-prevalent myth that America was an affluent society with only a few “pockets of poverty.” For many, the facts about poverty came as a revelation, and Dwight Macdonald’s article arguably did more than any other piece of advocacy to prepare the ground for Lyndon Johnson’s War on Poverty.

I don’t think the poor are invisible today, even though you sometimes hear assertions that they aren’t really living in poverty — hey, some of them have Xboxes! Instead, these days it’s the rich who are invisible.

But wait — isn’t half our TV programming devoted to breathless portrayal of the real or imagined lifestyles of the rich and fatuous? Yes, but that’s celebrity culture, and it doesn’t mean that the public has a good sense either of who the rich are or of how much money they make. In fact, most Americans have no idea just how unequal our society has become.

The latest piece of evidence to that effect is a survey asking people in various countries how much they thought top executives of major companies make relative to unskilled workers. In the United States the median respondent believed that chief executives make about 30 times as much as their employees, which was roughly true in the 1960s — but since then the gap has soared, so that today chief executives earn something like 300 times as much as ordinary workers.

So Americans have no idea how much the Masters of the Universe are paid, a finding very much in line with evidence that Americans vastly underestimate the concentration of wealth at the top.

Is this just a reflection of the innumeracy of hoi polloi? No — the supposedly well informed often seem comparably out of touch. Until the Occupy movement turned the “1 percent” into a catchphrase, it was all too common to hear prominent pundits and politicians speak about inequality as if it were mainly about college graduates versus the less educated, or the top fifth of the population versus the bottom 80 percent.

And even the 1 percent is too broad a category; the really big gains have gone to an even tinier elite. For example, recent estimates indicate not only that the wealth of the top percent has surged relative to everyone else — rising from 25 percent of total wealth in 1973 to 40 percent now — but that the great bulk of that rise has taken place among the top 0.1 percent, the richest one-thousandth of Americans.

So how can people be unaware of this development, or at least unaware of its scale? The main answer, I’d suggest, is that the truly rich are so removed from ordinary people’s lives that we never see what they have. We may notice, and feel aggrieved about, college kids driving luxury cars; but we don’t see private equity managers commuting by helicopter to their immense mansions in the Hamptons. The commanding heights of our economy are invisible because they’re lost in the clouds.

The exceptions are celebrities, who live their lives in public. And defenses of extreme inequality almost always invoke the examples of movie and sports stars. But celebrities make up only a tiny fraction of the wealthy, and even the biggest stars earn far less than the financial barons who really dominate the upper strata. For example, according to Forbes, Robert Downey Jr. is the highest-paid actor in America, making $75 million last year. According to the same publication, in 2013 the top 25 hedge fund managers took home, on average, almost a billion dollars each.

Does the invisibility of the very rich matter? Politically, it matters a lot. Pundits sometimes wonder why American voters don’t care more about inequality; part of the answer is that they don’t realize how extreme it is. And defenders of the superrich take advantage of that ignorance. When the Heritage Foundation tells us that the top 10 percent of filers are cruelly burdened, because they pay 68 percent of income taxes, it’s hoping that you won’t notice that word “income” — other taxes, such as the payroll tax, are far less progressive. But it’s also hoping you don’t know that the top 10 percent receive almost half of all income and own 75 percent of the nation’s wealth, which makes their burden seem a lot less disproportionate.

Most Americans say, if asked, that inequality is too high and something should be done about it — there is overwhelming support for higher minimum wages, and a majority favors higher taxes at the top. But at least so far confronting extreme inequality hasn’t been an election-winning issue. Maybe that would be true even if Americans knew the facts about our new Gilded Age. But we don’t know that. Today’s political balance rests on a foundation of ignorance, in which the public has no idea what our society is really like.

Krugman’ blog, 9/27/14

September 28, 2014

There were two posts yesterday.  The first was “Bad Economic Ideas:”

I review Jeff Madrick’s new book.

Yesterday’s second post was “Gross Gone:”

I don’t know anything about what’s been going on internally at Pimco; I just read the same stories as everyone else. I have, however, written a lot about Pimco’s macroeconomic analysis (which drove its bond-investment decisions).

The interesting thing is the Pimco was initially a bond bull, based on the correct understanding that deficits don’t crowd out lending when the economy is in a liquidity trap; but it then went off the rails, with Bill Gross insisting that rates would spike when the Fed ended QE2. I tried to explain why this was wrong, and got a lot of flak from people insisting that the great Gross knew more than any ivory-tower academic. But I knew what I was talking about!

The Pasty Little Putz, Dowd, Friedman, Kristof and Bruni

September 28, 2014

In “The Cult Deficit” the Putz tries to ‘splain why a creative society needs fringe groups and gurus.  In “From Pen and Phone to Bombs and Drones” MoDo says in needing Arab allies to help in the fight against ISIS, we turn a blind eye to their record on women.  The Moustache of Wisdom has a question:  “Who Had it Easier, Reagan or Obama?”  He says the final answer will have to come from historians years from now, but he seems to think a look at several critical areas offers some hints.  Mr. Kristof considers “Stranger Danger and Guns,” and also has a question:  Is knocking on a stranger’s door dangerous? If so, maybe that’s because we tolerate a society in which unregulated guns are prevalent.  In “The Wilds of Education” Mr. Bruni says the landscape that students romp across shouldn’t be too tame.  Here’s the Putz:

Like most children of the Reagan era, I grew up with a steady diet of media warnings about the perils of religious cults — the gurus who lurked in wait for the unwary and confused, offering absolute certainty with the aftertaste of poisoned Kool-Aid. From the 1970s through the 1990s, from Jonestown to Heaven’s Gate, frightening fringe groups and their charismatic leaders seemed like an essential element of the American religious landscape.

Yet we don’t hear nearly as much about them anymore, and it isn’t just that the media have moved on. Some strange experiments have aged into respectability, some sinister ones still flourish, but over all the cult phenomenon feels increasingly antique, like lava lamps and bell bottoms. Spiritual gurus still flourish in our era, of course, but they are generally comforting, vapid, safe — a Joel Osteen rather than a Jim Jones, a Deepak Chopra rather than a David Koresh.

Twice in the last few months I’ve encountered writers taking note of this shift, and both have made a similar (and provocative) point: The decline of cults, while good news for anxious parents of potential devotees, might actually be a worrying sign for Western culture, an indicator not only of religious stagnation but of declining creativity writ large.

The first writer is Philip Jenkins, a prolific religious historian, who argues that the decline in “the number and scale of controversial fringe sects” is both “genuine and epochal,” and something that should worry more mainstream religious believers rather than comfort them. A wild fringe, he suggests, is often a sign of a healthy, vital center, and a religious culture that lacks for charismatic weirdos may lack “a solid core of spiritual activism and inquiry” as well.

The second writer is Peter Thiel, the PayPal co-founder, venture capitalist and controversialist, who includes an interesting aside about the decline of cults in his new book, “Zero to One” — officially a book of advice to would-be entrepreneurs, but really a treatise on escaping what he regards as the developed world’s 40-year economic, technological and cultural malaise.

The implications of Jenkins’s argument are specific to religion. Cults can be dangerous, even murderous, but they can also be mistreated and misjudged (as Koresh’s followers were, with fatal consequences); moreover, spiritual experiments led by the charismatic and the zealous are essential to religious creativity and fruitful change. From the Franciscans to the Jesuits, groups that looked cultlike to their critics have repeatedly revitalized the Catholic Church, and a similar story can be told about the role of charismatic visionaries in the American experience. (The enduring influence of one of the 19th century’s most despised and feared religious movements, for instance, is the reason the state of Utah now leads the United States on many social indicators.)

Thiel’s argument is broader: Not only religious vitality but the entirety of human innovation, he argues, depends on the belief that there are major secrets left to be uncovered, insights that existing institutions have failed to unlock (or perhaps forgotten), better ways of living that a small group might successfully embrace.

This means that every transformative business enterprise, every radical political movement, every truly innovative project contains some cultish elements and impulses — and the decline of those impulses may be a sign that the innovative spirit itself is on the wane. When “people were more open to the idea that not all knowledge was widely known,” Thiel writes, there was more interest in groups that claimed access to some secret knowledge, or offered some revolutionary vision. But today, many fewer Americans “take unorthodox ideas seriously,” and while this has clear upsides — “fewer crazy cults” — it may also be a sign that “we have given up our sense of wonder at secrets left to be discovered.”

Thiel’s view of our overall situation is hotly contested, not surprisingly, on his own Silicon Valley turf. The Internet is cluttered with debates (some friendly, some less so) between Thiel and his peers over whether innovation has actually slowed down, whether recent technological progress is actually as disappointing as he frequently suggests.

But in the intellectual realm, the stagnation he identifies seems readily apparent, since whole swaths of political, ideological and religious terrain that fascinated earlier generations have been mostly written off in ours. As Mark Lilla noted in a recent New Republic essay, it’s not just that alternatives — reactionary, radical, religious — to managerial capitalism and social liberalism are no longer much embraced; it’s that our best and brightest no longer seem to have any sense of why anyone ever found alternatives worth exploring in the first place.

Perhaps the sacrifice is worth it, and a little intellectual stagnation is a reasonable price to pay for fewer cults and Communists.

Or maybe the quest for secrets — material or metaphysical, undiscovered or too-long forgotten — is worth a little extra risk.

Next up we have MoDo:

The president was at the United Nations on Wednesday urging young people across the Muslim world to reject benighted values, even as America clambers into bed with a bunch of Middle East potentates who espouse benighted values.

President Obama has been working hard to get a coalition that includes Saudi Arabia, Qatar, Bahrain, Jordan and the United Arab Emirates because they provide cover in the fight against the brutal, metastasizing threat of the Islamic State, a “network of death” known as ISIS, that our blunders — both of action and inaction — helped create.

He and Secretary of State John Kerry have cajoled this motley crew for the coalition — American warplanes are doing most of the airstrikes in Syria — even though in countries like Saudi Arabia and Qatar, powerful elements are financing some of the same terrorists that their governments have been enlisted to fight.

At the U.N. on Tuesday, in a scene in a fancy-old New York hotel that evoked Marlon Brando making the peace with the heads of the five families in “The Godfather,” President Obama offered a tableau of respect to the leaders of Saudi Arabia, Bahrain, Jordan, Qatar and the United Arab Emirates.

“This represents partners and friends in which we have worked for very many years to make sure that security and prosperity exists in the region,” he said.

When American presidents rain down bombs on Muslim countries, they use the awful treatment of women in the Middle East as one of their justifications.

In his speech at the United Nations, President Obama said he wanted “to speak directly to young people across the Muslim world” and urged them to create “genuine” civil societies.

“Where women are full participants in a country’s politics or economy, societies are more likely to succeed,” he said. “And that’s why we support the participation of women in parliaments and peace processes, schools and the economy.”

Yet, because we need the regressive rulers in the Persian Gulf to sell us oil and buy our fighter jets and house our fleets and drones and give us cover in our war coalitions, we don’t really speak out about their human rights violations and degradation of women as much as we should. The Obama administration was sparked to action by the videos of ISIS beheading two American journalists. Yet Saudi Arabia — wooed to be in the coalition by Kerry with a personal visit this month — has been chopping off heads regularly, sometimes for nonlethal crimes such as drugs or sorcery.

The president should just drop the flowery talk and cut to the chase. Americans get it. Let’s not pretend we’re fighting for any democratic principles here.

America failed spectacularly in creating its democratic model kitchen with Iraq. So now we have to go back periodically and cut the grass, as they say in Israel, to keep our virulent foes in check.

It is pre-emption. But the difference with President Obama’s pre-emption is that there is an actual threat to the globe from a vicious, maniacal army. President Bush, Dick Cheney, Donald Rumsfeld, Paul Wolfowitz and Condoleezza Rice made up a threat to America from a contained and diminished Saddam Hussein to justify pre-emption and serve their more subterranean purposes.

Eight months ago, the president was reduced to threatening to act without Congress, warning: “I’ve got a pen, and I’ve got a phone.”

Now he’s brandishing bombs and drones on a scale he’s never done before. The ex-community activist elected on a peace platform has grown accustomed to coldly ordering the killing of bad guys.

“It’s hard to imagine that in his wildest dreams — or nightmares — he ever foresaw the in-box he has,” said Richard Haass, the president of the Council on Foreign Relations.

But, as Harold Macmillan, the former British prime minister, said once, when asked what disrupted his best-laid plans: “Events, dear boy, events.”

As the U.S. woos the Arab coalition, Arab leaders are not speaking out against the atrocities of ISIS against women.

“It is the obligation and duty of Arab countries, where men always feel so possessive about their mother, their wife, their daughter, to condemn ISIS’s violence against women,” said Haleh Esfandiari, the director of the Middle East Program at the Wilson Center. “Why don’t they say a word?

“I’ve been working with women in the Middle East for 40 years, and I’ve never seen such brutality, such barbarism as that which ISIS is committing against women. It is unbelievable.”

We are so far from where the dunderheads of the Bush administration were in 2003, with George W. Bush bragging about his cakewalk of weakening dictators, forging democracies and recognizing the rights of women. As it has rampaged like a flesh-eating virus through the region, ISIS has been targeting professional women. An Iraqi lawyer who worked to promote women’s rights was grabbed from her home last week after she posted complaints on her Facebook page about ISIS’s “barbaric” destruction of mosques and shrines in Mosul. Sameera Salih Ali al-Nuaimy was tortured for days; then a masked firing squad executed her on Monday and then told her family she could not have a funeral.

In a Wall Street Journal piece headlined “ISIS’s Cruelty Toward Women Gets Scant Attention,” Esfandiari toted up a litany of horrors, including the tragic story of a woman who was tied to a tree, naked, and repeatedly raped by ISIS fighters, who are “rewarded” with droit du seigneur as they assault and pillage their way toward an Islamic caliphate.

She noted that even though ISIS propaganda emphasizes protecting the morality of women, it has taken little girls playing with dolls and married them off to fighters three times older, set up “marriage bureaus” in captured Syrian towns to recruit virgins and widows to marry fighters, and tied together women with a rope as though “they were being led to a makeshift slave market.”

She told me that “it’s a strategy to shame women and undermine their families. In our part of the world, a woman who has been raped, whether once or 50 times, feels ashamed, her family feels ashamed. Some commit suicide. Others become pregnant and are ostracized by their family and community, with no fault at all of their own.”

Haass noted that one of the lessons we should have learned in fighting halfway around the world, from Vietnam to Iraq, is “the power of local realities.”

“One of the things we’ve learned is that we can’t deliver fundamental social and cultural transformation in this part of the world,” he said. “Our ability to influence the position or status of women in the Arab or Muslim world is limited.”

He said the Arab coalition is necessary because “our priority has got to be to push back and weaken ISIS.

“Even if we’re not in a position to give women the better life they deserve,” he concluded, “we are in a position to save many of them from what ISIS would do to them. And that’s significant.”

And now we get to The Moustache of Wisdom:

Over the past few weeks I’ve been reading Ken Adelman’s fascinating history “Reagan at Reykjavik: Forty-Eight Hours That Ended the Cold War.” Adelman, who led Reagan’s arms control agency, was an adviser at Reagan’s 1986 Iceland summit meeting with Soviet President Mikhail Gorbachev. Using some newly declassified documents, Adelman fills out the extraordinary dialogue between the two leaders that set in motion a dramatic cut in nuclear arms.

You learn a lot about Reagan’s leadership in the book. For me, the most impressive thing was not Reagan’s attachment to his “Star Wars” strategic defense initiative, which is overrated in ending the Cold War. What is most impressive about Reagan is that he grasped that Gorbachev was a radically different kind of Soviet leader — one with whom he could make history — long before his intelligence community did. That made a big difference.

These days there is a lot of “if-only-Obama-could-lead-like-Reagan” talk by conservatives. I’ll leave it to historians to figure out years from now who was the better president. But what I’d argue is this: In several critical areas, Reagan had a much easier world to lead in than Obama does now.

“Easier world, are you kidding?” say conservatives. “Reagan was up against a Communist superpower that had thousands of nuclear missiles aimed at us! How can you say that?”

Here’s how: The defining struggle in Reagan’s day was the Cold War, and the defining feature of the Cold War was that it was a war between two different systems of order: Communism versus democratic capitalism. But both systems competed to build order — to reinforce weak states around the world with military and economic aid and win their support in the Cold War. And when either Moscow or Washington telephoned another state around the world, there was almost always someone to answer the phone. They even ensured that their proxy wars — like Vietnam and Afghanistan — were relatively contained.

Obama’s world is different. It is increasingly divided by regions of order and regions of disorder, where there is no one to answer the phone, and the main competition is not between two organized superpowers but between a superpower and many superempowered angry men. On 9/11, we were attacked, and badly hurt, by a person: Osama bin Laden, and his superempowered gang. When superempowered angry men have more open space within which to operate, and more powerful weapons and communication tools, just one needle in a haystack can hurt us.

Most important, Reagan’s chief rival, Gorbachev, won the Nobel Peace Prize in 1990 for doing something he never wanted to do: peacefully letting go of Eastern Europe. Obama’s foes, like the Islamic State, will never win the Nobel Peace Prize. Reagan could comfortably challenge Gorbachev in Berlin to “tear down this wall” because on the other side of that wall was a bad system — Communism — that was suppressing a civilization in Eastern and Central Europe, and part of Russia, that was naturally and historically inclined toward democratic capitalism. And there were leaders there — like Lech Walesa, another Nobel Peace Prize winner — to lead the transition. We just needed to help remove the bad system and step aside.

“The countries of Eastern and Central Europe were forcibly part of a Communist empire but culturally were always part of Western civilization,” explained Michael Mandelbaum, the Johns Hopkins University foreign policy specialist and author of “The Road to Global Prosperity.” “They never saw themselves as Communist, but rather as Westerners who had been kidnapped.” After Gorbachev, under pressure from Reagan and the West, released them, “they ran as fast as they could to embrace Western institutions.”

In the Middle East, which has consumed so much of Obama’s energy, the people tore down their walls — their systems — but underneath was not a civilization with the suppressed experience, habits and aspirations of democracy and free markets. Instead it was a toxic mix of Islamism, tribalism, sectarianism and an inchoate aspiration for democracy.

Reagan’s leadership challenge was to bring down a wall and then reap the peace dividends by just letting nature take its course. Obama’s challenge is that on the other side of the wall that the Arabs took down lies the world’s biggest nation-building project, with a civilization that is traumatized, divided and often culturally hostile to Western values and institutions. It’s an enormous job that only the locals can lead.

The one time that Reagan faced the miniversion of Obama’s challenge was in Lebanon. After Israel toppled the Palestinian ministate there, Reagan hoped it would unleash a naturally democratic order, with just a little midwifing help from American Marines. But after 241 U.S. servicemen were blown up in Beirut in 1983, Reagan realized that the civilization there was a mix of Islamists, sectarian Christians, Syrians, Shiite militias, Palestinian refugees and democrats. It required a lot more than us just standing guard. It required nation-building. And what did Reagan do? He left.

I was there to wave goodbye to the last Marines on the beaches of Beirut.

So comparing Reagan with Obama in foreign policy is inevitable. But when you do, also compare their respective contexts. The difference is revealing.

And let’s not forget that the grinning, senile old B-movie actor didn’t have to deal with virulent racism at home and an opposition party that had completely lost its mind.  Here’s Mr. Kristof:

Earlier this month, my iPhone vanished.

I looked up its location on an app called Find My Friends that my wife and I use, and I had a shock: The app said my phone was in a house 15 miles away, in a neighborhood that I’d never visited.

I drove there. It was night. The house looked creepy.

My wife stayed in the car, cellphone in hand, ready to summon the cavalry. I walked to the front door and rang the doorbell.

Nothing. The lights were on, so I rang again and knocked hard. I spent five minutes ringing the doorbell and pounding on the door. Finally, a man emerged.

“I think you have my phone,” I explained tautly.

“Your phone?” he asked.

“YOU HAVE MY PHONE!”

“Oh,” he said, “your phone.” He pulled it out, still with my name, email address and office phone number pasted on it, and meekly handed it over.

I left, no questions asked.

Full of myself, I posted about the adventure on social media — and provoked a firestorm. A typical comment on Facebook, from Glenna: “Are you insane?”

Many followers scolded me, while others — particularly those abroad — expressed bewilderment that it should be dangerous to knock on a door and ask for one’s property. Heidi asked: “What kind of society do we live in when knocking on someone’s door to retrieve a lost iPhone becomes perceived as life-threatening?”

Put aside the question of whether I was a knucklehead. Isn’t there a larger question of why we tolerate a society so bristling with guns that such a quest may be perilous? Aren’t we all knuckleheads for tolerating such a threat?

About one-third of American households have guns, according to a Pew survey (a bit more, Gallup says), and these firearms kill 32,000 Americans a year, according to the Centers for Disease Control and Prevention. Just last month, a Detroit man, Theodore Wafer, 55, was convicted of second-degree murder for shooting Renisha McBride, 19, who apparently knocked on his door seeking help after she was in a car accident.

When I lived in Japan in the 1990s, I encountered bewilderment at the fate of a 16-year-old Japanese exchange student in Louisiana who had been invited to a Halloween party. The boy, Yoshihiro Hattori, mistakenly went to the wrong address and rang the bell.

The homeowner, Rodney Peairs, came out with a gun and shouted, “Freeze.” Yoshihiro didn’t understand. Peairs shot him in the chest, killing him. We, as a country, should be ashamed that this prompted the Japanese government to teach its citizens traveling to the United States the word “freeze.”

As for Peairs, he had to live with himself. He was later quoted as saying that he would never again use a gun.

We turn to guns in the belief that they will make us safer. Nonsense!

Sure, there are cases where guns are successfully used for self-defense, but a study in the journal Injury Prevention found that the purchase of a handgun was associated with 2.4 times the risk of being murdered and 6.8 times the risk of suicide. Several other studies confirm that a gun in the house significantly increases the risk that a person in the home will be murdered or commit suicide.

Partly that’s because we misperceive the risks. We imagine a home invasion, but a study in the American Journal of Epidemiology found that 76 percent of homicide victims knew their assailant. That study also said that men with guns in the home are 10 times as likely to commit suicide in the home as men without a gun. Look, there are no simple solutions when we already have 300 million guns circulating in America. It’s also fair to note that any single gun is not much of a danger (statistically, a child is more likely to die from a swimming pool at a house than from a gun in the house).

But, with so many guns, often kept loaded without trigger locks, the collective toll is enormous. Just since 1968, it has been calculated, more Americans have died from gunfire than have died in all the wars in our country’s history.

The simplest baby step forward would be to institute universal background checks before gun purchases, to prevent sales to criminals. That was favored by 92 percent of Americans in a poll last year, as well as by three-quarters of members of the National Rifle Association. Yet the N.R.A. leadership is so extreme that it fights even such a step, and craven politicians buckle to its will.

I may have been a fool for trying to reclaim my phone. But we’re all idiots for accepting a society where knocking on a door is a deadly risk.

Last but not least we have Mr. Bruni:

When it comes to bullying, to sexual assault, to gun violence, we want and need our schools to be as safe as possible.

But when it comes to learning, shouldn’t they be dangerous?

Isn’t education supposed to provoke, disrupt, challenge the paradigms that young people have consciously embraced and attack the prejudices that they have unconsciously absorbed?

Isn’t upset a necessary part of that equation? And if children are lucky enough to be ignorant of the world’s ugliness, aren’t books the rightful engines of enlightenment, and aren’t classrooms the perfect theaters for it?

Not in the view of an unacceptable number of Americans. Not in too many high schools and on too many college campuses. Not to judge by complaints from the right and the left, in suburbs and cities and states red and blue.

Last week was Banned Books Week, during which proponents of unfettered speech and intellectual freedom draw attention to instances in which debate is circumscribed and the universe sanitized. As if on cue, a dispute over such censorship erupted in the affluent Dallas-area community of Highland Park, where many students pushed back at a recent decision by high school administrators to suspend the teaching of seven books until further review. Some parents had complained about the books.

Their titles? That was the strangest part. The seven offenders included the young adult novel “An Abundance of Katherines,” by John Green. It was deemed too sexually frank. Also “The Working Poor: Invisible in America,” by David K. Shipler. It has references to rape and abortion. “The Glass Castle,” Jeannette Walls’s best-selling memoir, was tagged for its portraits of alcoholism and mental illness. And “The Art of Racing in the Rain,” by Garth Stein, dared to include a scene in which a teenage girl under the age of consent comes on to an older man. In several sentences, her breasts are described.

It’s not exactly “Fifty Shades of Grey.” I mean, its narrator is a Labrador-terrier mix.

“It’s the dog book,” Stein marveled when I reached him by telephone in Seattle, where he lives. “My book’s the dog book.” In it an animal who expects to be reincarnated as a person puzzles over humanity — and prepares for it — by studying his master, a racecar driver.

“It’s full of life lessons: about responsibility, about self-reliance, about perseverance,” Stein said. Apparently, nipples trump all of that.

The events in Highland Park brought to mind other stories, including one in the Denver area that received national attention last week: A newly conservative board for the Jefferson County School District, which is Colorado’s second-largest, raised the possibility of pruning the curriculum of books and material that could be seen to exalt civil disobedience and promote unpatriotic thoughts. Where does that leave the civil rights movement? Vietnam?

Late last spring, during commencement season, students at one college after another succeeded in warding off scheduled speakers and honorary-degree recipients whose politics they disagreed with. Condoleezza Rice felt compelled to back out of a speech at Rutgers University. Christine Lagarde, the managing director of the International Monetary Fund, canceled an appearance at Smith College, where students were circulating a petition that charged the I.M.F. with the “strengthening of imperialist and patriarchal systems that oppress and abuse women worldwide.” Brandeis University reacted to faculty and student protests there by rescinding its invitation to the writer and women’s rights advocate Ayaan Hirsi Ali, who had made strongly negative statements about Islam.

Around that same time, there were movements on scattered college campuses to attach so-called trigger warnings to texts whose evocations of, say, anti-Semitism or rape might prompt emotional turmoil in students. This echoed moves years earlier by officials at some elementary, middle and secondary schools to prune standardized tests of words that might distress students, either by summoning life’s harshness, reminding them of their deprivation or making them feel excluded. “Poverty,” “slavery,” “divorce,” “hurricanes” and “birthdays” were on a list drawn up by New York City educators, who later abandoned the plan.

While these efforts differ greatly, they overlap in their impulse to edit the world to the comfort of students, and that’s especially troubling in this day and age, when too many people use technology and the Internet to filter a vast universe of information and a multitude of perspectives into only what they want to hear, a tidy, cozy echo chamber of affirmation.

The efforts are also inextricable from subtler, more pervasive dynamics of caution and conformity in our classrooms and schools, where “failure” and “disappointment” are sometimes dirty words. When teachers inflate grades, they’re making education a feel-good enterprise rather than a feel-rattled one. When high-school students obsessed with getting into elite colleges avoid any courses that play to their weaknesses, they’re treating education in precisely the wrong way, no matter how understandable their motivation.

And when students at those colleges march in lock step toward certain majors (economics, for example) and certain professions (finance and consulting), they’re missing out. That’s what the recent best seller “Excellent Sheep,” by William Deresiewicz, noted and rued: the treatment of hallowed universities as placid pastures for contented grazing rather than majestic landscapes to romp and rage across, their bruising pitfalls redeemed by their exhilarating peaks.

Education is about growing bolder and larger. It’s about expansion, and that can’t happen if there’s too strong an urge and a push to contract the ground it covers, to ease the passage across it, to pretty up the horizon.

“You’re only diminishing a young person’s ability to go off into the world and interface with people from all walks of life,” Stein said. Thinking back to his own childhood in the suburbs of Seattle and then his years at Columbia University, he said, “The best teachers I’ve had are the ones who stand up in front of the class and wave their arms and say provocative things that students then react to.”

He recalled that in the eighth grade, he read a book, recommended by a school librarian, in which bullies tormented a kid by pulling off his shoes and urinating in them. It upset him, because it was a situation alien to his own experience. That’s also why he needed to be exposed to it, he said.

“It showed me that this happens,” he explained, with a note of gratitude in his voice. “It made me understand.”

Krugman’s blog, 9/26/14

September 27, 2014

There were two posts yesterday.  The first was “The New Classical Clique:”

Simon Wren-Lewis thinks some more about macroeconomics gone astray; Robert J. Waldmann weighs in. For those new to this conversation, the question is why starting in the 1970s much of academic macroeconomics was taken over by a school of thought that began by denying any useful role for policies to raise demand in a slump, and eventually coalesced around denial that the demand side of the economy has any role in causing slumps.

I was a grad student and then an assistant professor as this was happening, albeit doing international economics – and international macro went in a different direction, for reasons I’ll get to in a bit. So I have some sense of what was really going on. And while both Wren-Lewis and Waldmann hit on most of the main points, neither I think gets at the important role of personal self-interest. New classical macro was and still is many things – an ideological bludgeon against liberals, a showcase for fancy math, a haven for people who want some kind of intellectual purity in a messy world. But it’s also a self-promoting clique.

I don’t think this clique could have formed and grown powerful in the first place without the intellectual and ideological foundations. Economics as a discipline being what it is, attacks on Keynesian economics as being inconsistent with rational behavior were bound to get some traction, and the stagflation of the 1970s certainly helped that attack, even if it was less relevant than claimed. Animus against government activism also played a key role, both in motivating the new classical economists themselves and in guaranteeing them external support.

Once the thing had gotten going, however, I think you understand its dynamics much better if you stop assuming that the motives of the movement’s leaders were pure.

Consider the extremism of Lucas and Sargent (pdf) in the early days, declaring Keynesian economics a complete failure – or Lucas talking about how Keynesian papers were greeted with “giggles and whispers”. As Wren-Lewis notes, the actual empirical failures of Keynesian economics weren’t nearly bad enough to justify that kind of total rejection – and as Waldmann says, the new classicals themselves turned their backs on empirical evidence when it began rejecting their own models. So why the utter rejection of anything Keynesian?

Well, while the explicit message of such manifestos is intellectual – this is the only valid way to do macroeconomics – there’s also an implicit message: from now on, only my students and disciples will get jobs at good schools and publish in major journals. And that, to an important extent, is exactly what happened; Ken Rogoff wrote about the “scars of not being able to publish sticky-price papers during the years of new neoclassical repression.” As time went on and members of the clique made up an ever-growing share of senior faculty and journal editors, the clique’s dominance became self-perpetuating – and impervious to intellectual failure.

OK, I know the members of the clique will be outraged – distorting incentives only apply to other people, only bureaucrats hijack institutions to serve their personal aggrandizement, etc.. As they say in Minnesota, ya sure, you betcha.

But what about me and my friends? Why, we’re pure and selfless seekers of truth. How dare anyone suggest otherwise?

OK, I think there is a sense in which I’m part of a counterclique. In fact, if you look at just about every economist in my cohort playing an influential role in formulating or discussing macroeconomic policy — Rogoff, Bernanke, Draghi, Blanchard, Summers — you’ll find that they studied macroeconomics at MIT or Harvard, and were formally or informally advised by Rudi Dornbusch and his good friend Stan Fischer.

As I said, international macro went in a different direction. I’ve written in the past that this had a lot to do with the overwhelming international evidence against a new classical view, although that view persisted on the domestic side despite compelling evidence after 1980. It also had to do with events. For domestic macro types, the big event of the 70s was stagflation; in international macro it was the collapse of Bretton Woods, and the shocking volatility in both nominal and real exchange rates that followed.

In that context, the very tight correlation between nominal and real rates meant that international macroeconomists kept sticky prices in their models. The famous Dornbusch “overshooting” analysis paired sticky goods prices with volatile, forward-looking asset prices, and seemed to have very interesting things to say – so international macro had a program other than the demolition of all things Keynes.

Also, my sense – it would be interesting to have some evidence – is that international macro has all along had stronger ties to real-world policymakers, especially at central banks, maybe because there are a lot of currencies and US-based economists therefore have a lot more opportunities to weigh in on actual policy decisions. Certainly Rudi pioneered a new role that combined highly regarded research with lots of country consulting. Since central banks never went all in for new classical – they tend to have this “but it doesn’t work in the real world” hangup – this too pulled international along a different path.

And yes, DornbuschFischerites tend to value research and people consonant with their worldview. I like to think that it’s nothing like the scourge-and-purge style of the new classical types, in part because my side of this thing likes to think of itself as open-minded, sometimes giving the impression of desperately seeking common ground (hi Olivier). But the friends-and-disciples effect certainly has some relevance, and there are a lot of DornbuschFischerites in influential places. Have I congratulated my old student Catherine Mann on her appointment as chief economist of the OECD?

These stories are not, of course, unique to economics; episodes like this have played out in many academic disciplines. Unfortunately, the rise of the new classical clique had consequences far beyond the academy, because it ended up playing an important role in the failure of policy to effectively confront the Lesser Depression.

And the work week ended with music, as usual, with “Friday Night Music: Quilt:”

I don’t know what I’d do without Bob Boilen — I think half or more the music I listen to over the course of a week comes from bands I discovered through his Tiny Desk Concerts. And here’s another — a young band that makes me want to drop acid and wear tie-died clothing, which is a great feeling when you’re 61.

 

Nocera and Collins

September 27, 2014

In “Paralysis Isn’t Inevitable” Mr. Nocera says solutions to “intractable” problems could be closer than we think.  In “Not For the Faint of Heart” Ms. Collins addresses real fear and loathing on the campaign trail.  Gee, I wonder what Hunter Thompson would have had to say about the current crop of Republicans…  Here’s Mr. Nocera:

One of the hardest things for us to do is to envision a future that is different from the present. For instance, we live in an age of paralyzed politics, so it is hard, in the here and now, to imagine what could change that. A second example: It is difficult to think of a scenario where federal gun legislation could be passed over the objections of the National Rifle Association. And a third: Income inequality has been the trend for some three decades; doesn’t it look as if it will always be that way?

What prompts these thoughts are two papers that landed on my desk recently. Although they tackle very different issues, they have one thing in common: They imagine a future that breaks from the present path.

The first is a draft of a speech given earlier this month at TEDMED by Daniel Webster, the director of the Johns Hopkins Center for Gun Policy and Research. (TEDMED is associated with TED Talks.) The second is an article in the latest edition of the Harvard Business Review by Roger Martin, the former dean of the Rotman School of Management at the University of Toronto.

Webster’s speech lays out an agenda that he predicts will reduce the murder rate by 30 to 50 percent within 20 years. “I don’t think that our current level of gun violence is here to stay,” he declares in the draft of the speech. Martin’s article is about how the rise of the “talent economy,” as he calls it, has helped further income inequality. But he doesn’t believe a high level of income inequality is an inevitable part of our future.

Let’s tackle Webster first. Politically, he told me, “It’s a loser to call for a gun ban.” Instead, his reforms would make it more difficult for criminals to get their hands on guns. Using background checks, he would keep guns away from people who have a history of violence. He would raise the age of gun ownership to 21. (Webster notes that homicides peak between the ages of 18 and 20.) He would pass laws that make gun dealers more accountable, including “requiring business practices that prevent guns being diverted to criminals.” And he would mandate something called microstamping, “which would make it possible to trace a gun used in a crime to its first purchaser.”

When I asked him why he thought these changes would eventually take place, given the inability of the Senate to pass a background check bill after Newtown, he pointed to polls that show the vast majority of gun owners favor such changes.

“The N.R.A. has been very successful in controlling the conversation and making it about a cultural war,” he told me. “But I believe that narrative won’t persist.” The key, he says, is to change the conversation so that it is about pro- and anti-crime instead of pro- and anti-gun. Once that happens, “gun owners will start to demand changes.” He added, “I think that ultimately that idea will prevail, and it will be a pretty mainstream idea.”

Now to Roger Martin. His essay traces the way “talent” came to replace labor and capital as the most important factor in the economy, so much so that those who were part of the talent economy could become billionaires even as the median income stalled and then slipped back. Chief executives, who have gorged on stock options, are part of the talent economy, and so are hedge fund managers, who charge the infamous “2 and 20” (meaning a 2 percent management fee and 20 percent of the profits), which ensures their wealth no matter how poorly their investors do. The interests of such talent, in his view, simply don’t align with the interests of the rest of us.

Like Webster, Martin also proposed a series of changes to “correct the imbalance,” as he puts it. He suggests that pension funds should see that they are best served when they do not hand capital to hedge funds, for instance. And he wants talent to show “self-restraint.”

When I told him that seemed unlikely, he told me he thought we were approaching a moment like 1935, when, after years of letting labor fend for itself, the government passed laws that protected labor and helped bring about the rise of the labor movement.

If talent doesn’t start taking the rest of the country into account, he said, he feared that the government would once again take significant action to level the playing field.

Given the current political paralysis, I asked, what might bring that about? “Another boom and crash,” he said.

Martin clearly sees his article as a warning to corporate executives and others who are part of the 1 percent. And maybe, just maybe, it will take hold. After all, not long after his article was published, Calpers, the huge California pension fund, announced that it was going to eliminate hedge funds from its portfolio. There’s hope yet.

There will be pie in the sky when we die by and by, and if wishes were horses beggars would ride, and if my grandmother had wheels she’d have been a buggy…  Here’s Ms. Collins:

In an ideal world, ads for congressional candidates would not look like promos for “Homeland.”

But there they are! Grainy shots of barbed-wire, terrorist training camps and men in Arab garb firing large weapons, overlaid with scary sound clips from cable news. (“Are they coming for us?”)

O.K., we’re scared enough. We already had the Iraqi prime minister free-associating about terrorists in the subways this week. We don’t need to be told that if we vote for the wrong candidate in November, it’s curtains.

In an election year, there’s certainly a lot of foreign policy to debate. Should Congress be voting on whether we’re going to war? Which of the candidates think we should send American troops? Should we really be arming Syrian rebels?

You will be stunned to hear that none of these issues are the subject of campaign ads. What we’re getting is stuff like:

“Staci Appel — Passports for Terrorists” (Iowa)

“Dan Maffei Puts Us at Risk” (New York)

“Michelle Nunn’s own plan says she funded organizations linked to terrorists.” (Georgia)

That last one comes from Republican Senate candidate David Perdue. We don’t have time here to follow the intricate, pothole-paved path that led the Perdue camp to that conclusion. But to get there you have to be prepared to believe that Points of Light, a charity founded by George H. W. Bush, has been assisting Hamas.

The Republican fear-mongering has several aims. One is to remind voters that the Democratic candidate in question belongs to the same party as Barack Obama. This is totally fair. It may get boring, but it is not against the rules.

Theme 2 is that Candidate X is making it easier for Americans who trained as terrorists overseas to get back into the country and blow something up.

Staci Appel, a candidate for Congress in Des Moines, fell into a deep hole during a debate when her Republican opponent said that if he were in office, he’d “be urging our State Department” to revoke the passports of people who have admitted they belong to terrorist organizations.

Since “urging” is pretty much all members of Congress do these days, it sounds like a relatively harmless way to pass the time. However, Appel demurred, and said “we need to make sure that we work through the system.”

Perhaps she misunderstood what he was saying. But you know what happened next. The poor woman was eventually forced to run her own ad announcing that she “Supports Revoking Passports for Terrorists.”

Meanwhile, up in New Hampshire, Republican Senate candidate Scott Brown has been bragging that when he was last in office — during a previous incarnation as the senator from Massachusetts — he sponsored a bill to revoke the citizenship of anyone who gives aid to a terrorist group.

That’s a lot different from passports. You can certainly try somebody for treason, but there’s no way to just decree that an American is no longer an American. The founding fathers were very clear on that point. If you resurrected James Madison and showed him Obamacare and citizenship-stripping, I can guarantee you which one would freak him out.

The most popular terrorism-connected campaign theme is overall border security, since it allows conservative candidates to roll up ISIS terrorists with illegal Hispanic immigrants. “She’s for amnesty, while terrorism experts say our border breakdown could provide an entry for groups like ISIS!” announced that David Perdue ad against Michelle Nunn in Georgia. Some experts believe that even at this early hour, Perdue has wrapped up the title of Worst Commercial of the Campaign.

The “terrorism experts,” by the way, are actually the Texas Department of Public Safety.

Brown took up the same theme this week, lacing into both President Obama and his opponent, Senator Jeanne Shaheen, for a “passive, pathetic attitude” on protecting the borders.

This was during his first foreign affairs speech as a candidate in New Hampshire. Shaheen’s campaign took the occasion to remind the world that when he was representing Massachusetts, Brown had boasted about his “secret meetings with kings and queens,” which appear to have all been fictional.

Except for citizenship-revoking, Brown’s speech was general in the extreme. It would be great to hear some specifics.

Right now the United States spends more on border security than on all the rest of its criminal law enforcement agencies combined. Under President Obama, the Department of Homeland Security has constructed nearly 650 miles of fences. The number of border patrol agents has doubled to more than 20,000. They patrol every mile of the border every day, aided by 10 drones.

When candidates announce they want to beef up border security, how much more do you think they want to spend? Should there be an agent every 500 feet? A line of officers holding hands from the Pacific to the Gulf of Mexico? Inquiring minds want to know.

Maybe they could put it in an ad.

Krugman’s blog, 9/25/14

September 26, 2014

There were three posts yesterday.  The first was “Unseemly Notes:”

Something I didn’t know: David Brooks’s column that, among other things, lamented the failure of the wealthy to follow a “code of seemliness” was actually part of a broader complaint to that effect among conservative intellectuals. For example, Charles Murray’s “Coming Apart” is mainly about what has gone wrong with working-class values, but he devotes a fair bit of space to the “unseemly” ostentation of the elite; strange to say, he focuses on Hollywood producers rather than private equity managers, but still.

Was it ever different? Actually, yes. I’ve written before about the remarkable Fortune portrait of top executives in 1955, who really did live much more modest and sober lives than their modern counterparts (even if there was probably more sex and alcohol consumption than Fortune let on).

What’s interesting, however, is that Fortune claimed that this modesty was something new, a break with the previous generation — and it attributed the change not to a shift in values but to a change in circumstances: “The large yacht [has] foundered in the seas of progressive taxation.”

But that was then. The surge in executive compensation after the 1970s is well known; I’m not sure how many people know just how dramatic the cut in top taxes has been. The IRS has been collecting data on the incomes and taxes of the 400 top taxpayers (pdf) since 1992; as of the late naughties they were paying average income tax rates of less than 20 percent (and surely very little in other taxes). We can produce roughly comparable data (pdf) for the 1950s; in 1955 there were 427 filers with incomes over $750,000, and they paid 51.2 percent of their income in taxes. So taxes dropped from more than half to less than a fifth. That’s a lot.

And the implication, of course, is that it’s kind of silly to lament the loss of elite sobriety and seemliness without noticing that the big difference these days is that the rich have so much money.

While we’re on this topic, I’d like to thank Bruce Bartlett for directing me to a really interesting recent Fed paper on spending patterns (pdf), which shows that other things equal people are more likely to buy fancy cars if they live in highly unequal Census tracts. That is, inequality seems to drive conspicuous consumption, just as Veblen told us.

But back to the main point: anyone nostalgic for the manners and apparent morals of the good old WASP elite should be aware that a lot of that elite’s restraint came from the fact that it wasn’t at all rich by today’s standards.

The second post yesterday was “Asymmetric Monetary Risks:”

How much slack is there in the U.S. labor market? Good question. The measured unemployment rate is fairly low, but labor force participation also seems low, and I have doubts about studies purporting to say that it’s overwhelmingly long-term demographics. Wage gains are still slow. My guess is that there’s considerably more slack than the unemployment number might lead you to suspect, but the truth is that I don’t know.

But here’s the thing: you don’t know either. Neither does Janet Yellen, or Charles Plosser, or anyone else; anyone who thinks he or she knows for sure is suffering from the Dunning-Kruger effect.

So let’s hear it for Charles Evans, who gets it exactly right: we need to focus on the asymmetry of risks.

If it turns out that there’s less slack than our best guess, inflation may overshoot before the Fed can react. That would be unpleasant. But it’s manageable: if there’s one thing the Fed knows, it’s how to tighten.

But if it turns out that there’s more slack than we guess, and the Fed tightens too soon, the result can be tragedy: we can end up back in the liquidity trap, facing years of below-target inflation (maybe even deflation) and economic stagnation. As Evans says, we’ve seen this movie — in fact, several remakes: Japan in the early 2000s, the ECB in 2010, the Riksbank in Sweden.

The prudent course is to wait for clear evidence of overheating. Damn the inflationistas and financial-stability-istas who want to torpedo recovery; full speed ahead.

Yesterday’s last post was “The Terrible Two:”

Jared Bernstein asks why the Fed (and just about all of its counterparts abroad) targets 2 percent inflation. I did some digging on this very issue in my paper for last spring’s ECB conference, and found that 2 was a convenient round number that seemed to provide a reasonable resolution to the conflict between the price stability crowd and economists worried about the two zeroes.

The price stability thing is obvious: there have always been a number of economists who view the purchasing power of money as a sort of sacred trust, the preservation of the unit of account as critical, etc.. They wanted an inflation target of zero, so that a dollar would be a dollar forever.

On the other side, realists pointed out that there were two troubling forms of downward stickiness: interest rates can’t go negative, and neither workers nor employers are happy with nominal wage cuts. These considerations argued for a positive inflation target, to provide room to cut real rates below zero in a downturn and to adjust relative wages without any actual cuts.

So why a 2 percent target? It was low enough that the price stability types could be persuaded, or were willing to concede as a possibility, that true inflation — taking account of quality changes — was really zero. Meanwhile, as of the mid 1990s modeling efforts suggested that 2 percent was enough to make sustained periods at the zero lower bound unlikely and to lubricate the labor market sufficiently that downward wage stickiness would have minor effects. So 2 percent it was, and this rough guess acquired force as a focal point, a respectable place that wouldn’t get you in trouble.

The problem is that we now know that both the zero lower bound and wage stickiness are much bigger issues than anyone realized in the 1990s — financial/balance sheet crises can produce situations in which the ZLB is binding for years on end, and in Europe, at least, we find ourselves needing large changes in relative wages.

Unfortunately, it’s now very hard to change the target; anything above 2 isn’t considered respectable.

Brooks and Krugman

September 26, 2014

In “The Good Order” Bobo gurgles that the arduous work of imposing order is critical to success in any realm, from the international state system to one’s own mind.  “MetroJournalist” from the metropolitan NY area wins the internets today with this comment:  “Mr. Brooks, you forgot to mention that every morning, TPTB at The New York Times, wake up, have coffee, go to their desks and fail to understand that there are some columnists who need to be replaced by people who have something worthier to write about.”  I do so hope that Bobo reads the comments…  Prof. Krugman has questions about “The Show-Off Society:”  Has there been an explosion of elite ostentation? If so, does it reflect moral decline, or a change in circumstances?  Here’s Bobo:

When she was writing, Maya Angelou would get up every morning at 5:30 and have coffee at 6. At 6:30, she would go off to a hotel room she kept — a small modest room with nothing but a bed, desk, Bible, dictionary, deck of cards and bottle of sherry. She would arrive at the room at 7 a.m. and write until 12:30 p.m. or 2 o’clock.

John Cheever would get up, put on his only suit, ride the elevator in his apartment building down to a storage room in the basement. Then he’d take off his suit and sit in his boxers and write until noon. Then he’d put the suit back on and ride upstairs to lunch.

Anthony Trollope would arrive at his writing table at 5:30 each morning. His servant would bring him the same cup of coffee at the same time. He would write 250 words every 15 minutes for two and a half hours every day. If he finished a novel without writing his daily 2,500 words, he would immediately start a new novel to complete his word allotment.

I was reminded of these routines by a book called “Daily Rituals: How Artists Work,” compiled by Mason Currey.

The vignettes remind you how hard creative people work. Most dedicate their whole life to work. “I cannot imagine life without work as really comfortable,” Sigmund Freud wrote.

But you’re primarily struck by the fact that creative people organize their lives according to repetitive, disciplined routines. They think like artists but work like accountants. “I know that to sustain these true moments of insight, one has to be highly disciplined, lead a disciplined life,” Henry Miller declared.

“Routine, in an intelligent man, is a sign of ambition,” W.H. Auden observed.

Auden checked his watch constantly, making sure each task filled no more than its allotted moment. “A modern stoic,” he argued, “knows that the surest way to discipline passion is to discipline time; decide what you want or ought to do during the day, then always do it at exactly the same moment every day, and passion will give you no trouble.”

People who lead routine, anal-retentive lives have a bad reputation in our culture. But life is paradoxical. In situation after situation, this pattern recurs: order and discipline are the prerequisites for creativity and daring.

This is true on so many levels. Children need emotional and physical order so they can go off and explore. A parent’s main job is to provide daily predictability and emotional security.

Communities need order to thrive and cooperate since where there is chaos and disorder there is distrust and withdrawal. The main job of local leaders is to provide the basic infrastructure of security: roads, police, honest judges and orderly schools.

The world needs order, too, a set of assumed norms and routines that all nations adhere to. You can’t have freedom, trust, democracy and self-determination when thugs like Vladimir Putin of Russia are rampaging across borders and monsters like the Islamic State are killing innocents.

The world’s superpower has a hard and unpleasant duty. The United States is obligated to organize coalitions to impose rule of law — to beat back the wolves and maintain that order.

Building and maintaining order — whether artistic, political or global — seems elementary, but it’s surprisingly hard. Writers have to go to amazing lengths to impose order on their own unruly minds — going off to basement storage rooms. W. Somerset Maugham refused to work in a room with a view. He liked facing a bare wall. It requires toughness of mind and rigid discipline to properly serve your own work.

Preserving world order is even harder. President Obama showed that kind of toughness in his United Nations address this week (you knew I was going to make this leap). It was one of the finest speeches of his presidency.

During his public life, Obama has hit the high notes of poetic romance — his 2008 campaign. He has also hit some prosaic notes of caution, realism and inaction. But this speech blended the two tones. It put tough-minded realism at the service of a high calling.

The speech was about defending the world order against enemies like ISIS and Putin. Breaking with past emphasis, he acknowledged that sometimes you have to use military might to fight off a military threat. He acknowledged that power-hungry thugs aren’t appeased if you try to show them how nonthreatening and reasonable you are. Obama cast off his cloak of reluctance and more aggressively championed democracy than he has recently. He was direct and forthright.

We’ll see what action comes behind the words. But the larger point is that the order of global civilization, like the order in a poet’s mind, is something that has to be fought and imposed every day. The best life is a series of daring excursions from a secure and orderly base.

I wonder if Bobo reads books on creativity in hopes of learning how to be less of a hack…  Here’s Prof. Krugman:

Liberals talk about circumstances; conservatives talk about character.

This intellectual divide is most obvious when the subject is the persistence of poverty in a wealthy nation. Liberals focus on the stagnation of real wages and the disappearance of jobs offering middle-class incomes, as well as the constant insecurity that comes with not having reliable jobs or assets. For conservatives, however, it’s all about not trying hard enough. The House speaker, John Boehner, says that people have gotten the idea that they “really don’t have to work.” Mitt Romney chides lower-income Americans as being unwilling to “take personal responsibility.” Even as he declares that he really does care about the poor, Representative Paul Ryan attributes persistent poverty to lack of “productive habits.”

Let us, however, be fair: some conservatives are willing to censure the rich, too. Running through much recent conservative writing is the theme that America’s elite has also fallen down on the job, that it has lost the seriousness and restraint of an earlier era. Peggy Noonan writes about our “decadent elites,” who make jokes about how they are profiting at the expense of the little people. Charles Murray, whose book “Coming Apart” is mainly about the alleged decay of values among the white working class, also denounces the “unseemliness” of the very rich, with their lavish lifestyles and gigantic houses.

But has there really been an explosion of elite ostentation? And, if there has, does it reflect moral decline, or a change in circumstances?

I’ve just reread a remarkable article titled “How top executives live,” originally published in Fortune in 1955 and reprinted a couple of years ago. It’s a portrait of America’s business elite two generations ago, and it turns out that the lives of an earlier generation’s elite were, indeed, far more restrained, more seemly if you like, than those of today’s Masters of the Universe.

“The executive’s home today,” the article tells us, “is likely to be unpretentious and relatively small — perhaps seven rooms and two and a half baths.” The top executive owns two cars and “gets along with one or two servants.” Life is restrained in other ways, too: “Extramarital relations in the top American business world are not important enough to discuss.” Actually, I’m sure there was plenty of hanky-panky, but people didn’t flaunt it. The elite of 1955 at least pretended to set a good example of responsible behavior.

But before you lament the decline in standards, there’s something you should know: In celebrating America’s sober, modest business elite, Fortune described this sobriety and modesty as something new. It contrasted the modest houses and motorboats of 1955 with the mansions and yachts of an earlier generation. And why had the elite moved away from the ostentation of the past? Because it could no longer afford to live that way. The large yacht, Fortune tells us, “has foundered in the sea of progressive taxation.”

But that sea has since receded. Giant yachts and enormous houses have made a comeback. In fact, in places like Greenwich, Conn., some of the “outsize mansions” Fortune described as relics of the past have been replaced with even bigger mansions.

And there’s no mystery about what happened to the good-old days of elite restraint. Just follow the money. Extreme income inequality and low taxes at the top are back. For example, in 1955 the 400 highest-earning Americans paid more than half their incomes in federal taxes, but these days that figure is less than a fifth. And the return of lightly taxed great wealth has, inevitably, brought a return to Gilded Age ostentation.

Is there any chance that moral exhortations, appeals to set a better example, might induce the wealthy to stop showing off so much? No.

It’s not just that people who can afford to live large tend to do just that. As Thorstein Veblen told us long ago, in a highly unequal society the wealthy feel obliged to engage in “conspicuous consumption,” spending in highly visible ways to demonstrate their wealth. And modern social science confirms his insight. For example, researchers at the Federal Reserve have shown that people living in highly unequal neighborhoods are more likely to buy luxury cars than those living in more homogeneous settings. Pretty clearly, high inequality brings a perceived need to spend money in ways that signal status.

The point is that while chiding the rich for their vulgarity may not be as offensive as lecturing the poor on their moral failings, it’s just as futile. Human nature being what it is, it’s silly to expect humility from a highly privileged elite. So if you think our society needs more humility, you should support policies that would reduce the elite’s privileges.

Krugman’s blog, 9/24/14

September 25, 2014

There were two posts yesterday.  The first was “Charlatans and Cranks Forever:”

Back when Paul Ryan released his first big-splash budget — the one that had the commentariat cooing over its “seriousness” — it included a link to an absurd Heritage Foundation analysis claiming, among other things, that the plan would drive the unemployment rate down to 2.8 percent. (Heritage then tried, unsuccessfully, to send its nonsense down the memory hole and pretend it never happened.) Ryan defenders tried to claim that the plan didn’t actually rely on that Heritage stuff; but as some of us tried to explain, the plan actually didn’t add up, relying on a multi-trillion-dollar magic asterisk on tax receipts. And we predicted that sooner or later Ryan would embrace magical theories about how tax cuts increase revenue.

And here we are.

One disturbing effect if Republicans take the Senate, by the way, may be that the Congressional Budget Office becomes a purely partisan operation — effectively a department of Heritage.

The second post yesterday was “Having It and Flaunting It:”

David Brooks is getting some ribbing for suggesting that the wealthy should “follow a code of seemliness”, not living the lavish lifestyles they can afford. I don’t want to join in the jeering; instead, I want to talk a bit about the economics of flaunting your wealth (which was actually a topic I was working on before David’s last column).

The first thing to say is that expecting the rich not to flaunt their wealth is, of course, unrealistic. If your sense is that the rich were more restrained in the 50s and 60s, well, that’s because they weren’t nearly as rich either absolutely or relatively. The last time our society was as unequal as it is today, giant mansions and yachts were every bit as ostentatious as they are now — there’s a reason Mark Twain called it the Gilded Age.

Beyond that, for many of the rich flaunting is what it’s all about. Living in a 30,000 square foot house isn’t much nicer than living in a 5,000 square foot house; there are, I believe, people who can really appreciate a $350 bottle of wine, but most of the people buying such things wouldn’t notice if you substituted a $20 bottle, or maybe even a Trader Joe’s special. Even really fine clothing derives a lot of its utility to the wearer by the fact that other people can’t afford it. So it’s largely about display — which Thorstein Veblen could, of course, have told you.

So why go after this display, as opposed to taxing away some of the income? You could say that taxes reduce the incentive to get rich; but so would sumptuary laws, which would undermine the point of getting rich, and so, in fact, would a “code of seemliness”, which would again reduce the fun of flaunting it, which is a lot of what people want lots of money for.

Wait, there’s more. If you feel that it’s bad for society to have people flaunting their relative wealth, you have in effect accepted the view that great wealth imposes negative externalities on the rest of the population — which is an argument for progressive taxation that goes beyond the maximization of revenue.

And one more thing: think about what this says about economic growth. We have an economy that has become considerably richer since 1980, but with a large share of the gains going to people with very high incomes — people for whom the marginal utility of a dollar’s worth of spending is not only low, but comes largely from status competition, which is a zero-sum game. So a lot of our economic growth has simply been wasted, doing nothing but accelerating the pace of the upper-income rat race.

And now it’s time for me to make my seemly way to the office, on foot and mass transportation, where I will gloat in my moral superiority and sneer at people who haven’t won as many academic honors. Oh, wait.


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